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Recession is coming, says the BCC

As 1,100 jobs go at Persimmon, the BCC says our chances of avoiding recession are shrinking by the day...

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Published: 08 Jul 2008

Last Updated: 31 Aug 2010

The gloomy forecast from the British Chamber of Commerce followed its quarterly survey of 5,000 small and medium-sized businesses, which discovered that confidence in the manufacturing and service sectors (which accounts for a big chunk of our economy) has plummeted to its lowest level since the early 1990s, with the credit crunch and rising costs leaving many companies in danger of running out of cash. This ‘menacing deterioration in UK prospects’ means we’re now facing a serious risk of recession, according to the BCC.

This morning’s news from Persimmon hasn’t exactly helped to cheer us up. The housebuilder reported that house sale completions were down by almost a third in the first six months of the year, sending revenues down 34% (the ‘most challenging period of our recent history’, it called it). Apparently it’s been forced to cut 1,100 jobs already this year to try and keep its head above water, much like rivals Taylor Wimpey and Barratt. No wonder all these housebuilders have seen their share prices tank in recent months…

In fact, it’s pretty much wall-to-wall doom and gloom this morning. A report from the Recruitment and Employment Confederation suggests that demand for permanent staff fell for the first time in five years last month. The Council of Mortgage Lenders says home loans are down 44% on last year. A survey by Orange discovered that almost a third of SMEs think we’re already in a fully-blown recession (another 59% think it’s ‘just’ a downturn). And in the last couple of hours, the FTSE 100 index has officially dropped into bear market territory, meaning it’s down more than 20% from its recent peak.

So can anything be done to arrest this decline? The City would love an interest rate cut, but with inflation still soaring, the Bank of England’s hands are tied – most people are expecting it to stick at 5% this Thursday. But as households start to feel the pinch, the BCC says the worst-case scenario is that the Government will increase business taxes to help out. ‘This would be a catastrophe,’ says BCC director general David Frost. ‘To put more pressure on business would not only restrict growth and hit the consumer hard, it would further crush what our economy is based on – confidence.’ And at the moment, confidence is in very short supply.